All posts tagged Alcon

At its inception in 1996, Novartis was ridiculed by its rivals for its foray into generics, earning criticism that copy-cat drug making is not worthy of an industry driven by innovation.

More than 10 years down the road, Novartis also owns a thriving eye care business, a vaccines division and a healthy over-the-counter unit, all considered essentially “non-pharma” businesses, which have helped it grow revenue around 27% to $14.92 billion (€10.52 billion) in the second quarter.

Among those drugs is multiple-sclerosis pill Gilenya, which roughly one year after being approved already serves more than 13,000 patients, making it one of the most successful drug launches ever, according to chief executive Joe Jimenez.

Given this performance, analysts such as Michael Nawrath of Zuercher Kantonalbank said:

“Drug price cuts and patent losses can be over-compensated by new products, also in 2012 when Diovan will lose patent protection in more key markets.”

Little wonder that investors are pushing up the stock more than 3%. And at a price-earnings ratio–which denotes future profitability–of 11.3 it may even look cheap, considering that pre-crisis ratios were closer to 20.

The last decade has seen the pharmaceutical industry blighted by a dearth of new drugs. But Jack Scannell, pharma analyst at Bernstein reckons this could change. He said:

“There are signs that new drug pipelines may be slowly improving, which is an important trend to watch.”

But there is no reason for euphoria as second quarter earnings are set to show that the industry remains under pressure. As Mr. Scanell said: “When netted against upcoming patent expiries it is still not enough in absolute terms [to lift the sector].” Patent losses, austerity measures and increasingly strict regulatory oversight have pressured the sector for years and have pushed valuations to multi-year lows. A turnaround isn’t in sight but some stock picking might be worthwhile, analysts say. Among those that could excel are Novartis, which thanks to its recent acquisition of eye care firm Alcon is expected to boost sales and profits in the second quarter in spite of patent losses and currency swings. Due to previous takeovers, which have helped Novartis spread its product portfolio to include over-the-counter drugs and generics, it is expected to outperform the sector. [More over the jump]

Johnson & Johnson’s plan to buy Swiss-listed medical device maker Synthes will probably succeed in the end, given that the board and management of both companies have agreed to the deal.

But the complicated deal structure means that implementing it may turn out not to be as straightforward as the companies’ press release suggests.

J&J says it’s offering to buy Synthes at a price of 159 Swiss francs a share, with CHF55.65 of that to be paid in cash, and the rest in J&J stock. The final price will only be fixed ten days before the deal is closing, a year from now at the earliest.

So all Synthes shareholders know for certain is the cash component of the deal.

The stock element is subject to fluctuations in J&J’s share price, as well as changes in the exchange rate of the Swiss franc against the dollar. Although the deal structure does include a hedge against such movements, meaning that the amount of J&J stock that will change hands can alter depending on changes in the price of the dollar or J&J stock, uncertainty about the final price remains.

This goes a long way to explain why Synthes shares failed to jump towards the stipulated offer price of CHF159, and instead are lingering at CHF147.10, only 0.4% up from Tuesday’s close.

Novartis’s hardball play to acquire Alcon has paid off, bolstering the Swiss pharma giant’s management and board, whose belief in the firm seems justified and should help generate investor trust.

For months, the market had feared Novartis would fail to fully acquire the eye care company because of resistance from Alcon shareholders, which include hedge funds and Alcon staff.

Concerns were high that this would force Novartis to run the firm at arm’s length for years, reducing potential synergies and curtailing the Swiss firm’s ability to run the U.S. company in a meaningful way.

While the added cash component in Novartis’s sweetened $12.9 billion offer to buy the remaining 23% of Alcon is a concession to pressure from Alcon’s minority shareholders, the cash component is far lower than some market participants had feared.

Novartis’s bet that with time it would win over Alcon Inc.’s shareholders seems to be paying off.

Since the Swiss pharma giant bought a majority stake in the eye-care firm earlier this year, resistance from Alcon’s minority shareholders to Novartis’s offer their shares has been stiff, putting it under pressure to raise the price tag.

Alcon’s independent directors committee repeatedly balked at the offer, saying it was too low when compared to what Novartis paid to Nestlé SA for its 77% stake in Alcon. Although a valid argument, Novartis rejected Alcon’s complaint, saying Nestlé’s majority stake deserved a premium.

[This is a guest post by Steve Goldstein. The original article was published on MarketWatch]

A recent downturn in the value of Swiss drug maker Novartis is making a heavily-criticized bid for eye-care-products maker Alcon even worse.

Bloomberg

Woman uses Alcon eye drops

Novartis in late January offered to swap 2.8 of its own shares for each share of Alcon’s it didn’t already own.

At the time, that valued each Alcon share at $153, and using Tuesday’s closing prices for Novartis, the bid is worth $147.53.

Alcon closed Tuesday at $159.95, implying that the market expects a better offer from Novartis.

The offer has been criticized because Novartis isn’t offering as much to minority shareholders of Alcon vs. what it is willing to pay Nestle.

Novartis is paying Nestle $180 per Alcon share to grab a 52% block in the eye-care firm in a deal that is expected to close in the second half of the year. Daniel Vasella, chief executive of Novartis, told analysts in January that the difference reflects the fact that with the Nestle transaction, it will receive control of the company.

But Alcon’s independent directors have called the price “inadequate,” said it was based on “fundamentally flawed” analysis and that the offer shows “profound disrespect for Alcon’s minority shareholders, many of whom are employees who, for more than 60 years, created the value in Alcon.”

The Swiss drugmaker expects this corner of the healthcare market to grow by up to 7% a year over the next five years, faster than the market for branded prescription drugs, which will probably expand at a rate of just 5%. That’s because the market for such drugs is facing an avalanche of problems, starting with an unprecedentedly high number of products losing patent protection. This means healthcare payers will replace comparatively expensive branded products with cheaper generic versions.

What’s more, governments worldwide are seeking ways to rein in healthcare spending as they need to tighten their belts to pay for the various economic stimulus programs entered over the last two years to cushion the blow from the financial crisis on their economies.

Last, but not least, drugmakers like Novartis have been slow to come up with new drugs that could compensate for revenue lost to generics as older drugs go off patent.

Daniel Vasella, Novartis’s CEO has been one of the first “big pharma” executives to see the writing on the wall. He started to widen the company’s revenue base by branching out into faster growing – albeit from a lower base – areas of healthcare. Novartis became a major force in the generics market, years before competitors like Sanofi Aventis, when it acquired German generics company Hexal in 2005. A year later, Novartis entered the vaccines market through its purchase of Chiron, again years before other big drugmakers rediscovered this market. Most of the world’s leading drugmakers had neglected vaccines for decades, because the business was considered low-margin and low-growth. With the emergence last year of the first flu pandemic in forty years, vaccines suddenly became a hot business and Novartis expects to book huge profits from government orders of vaccines to protect their citizens from the flu.

The catch is, that despite having executed a visionary strategy of entering new healthcare niches early, the strategy hasn’t paid off yet. [For full article please read on over the jump.]